Let's say that I defined a new term in my writing, such as (yes, it's second-person):

You spot a Holo-Reader—a long, silver metal tube that records holograms in three dimensions for later playback.

It's pretty clear that the first time I mention and define the new term, it's a name, and thus should be properly capitalized (as "Holo-Reader.")

But what about subsequent uses of the term? Should I capitalize it or not?

I feel personally that maybe I should, but it draws too much attention to it and treats it as a name; whereas now, it has become part of the lingua franca of the reader, of the world in which the writing inhibits; and is therefore not a name, but a "common" object.

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This isn't really related to your question, just a pet peeve. The word tense has an extremely specific meaning, which has nothing to do with person. “Past”, “present”, and “future” are examples of tense; “2nd person” is not.
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Jonathan SterlingJul 17 '11 at 7:15

@Jon: fixed. I admit, I wrote this question under duress :)
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ashes999Jul 18 '11 at 3:24

4 Answers
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My preference would lean toward no capitalization at all. Definitely not differing caps throughout the book. In fact, I wouldn't hyphenate it. To treat a new word as a normally used word gives a valuable feel of reality to the object. Isaac Asimov used this technique in his sci-fi Foundation series, and it lent credibility to the world he created.

Of course, that is just the preference of an avid reader. You could probably get more authoritative suggestions and opinions from Writers.SE.

You spot a holoreader—a long, silver metal tube that records holograms in three dimensions for later playback.

I think it depends on what you are trying to do. By capitalising it, you are emphasising the difference - rather like saying "Now I am going to use and define a term - read carefully". By using the term as it would be normally used by your characters, you don't highlight this so much - it is just part of their world.

You can de-emphasise it even more by modifying the description, which itself feels like a side note to people who are not part of the story. Maybe something like:

"You spot a holoreader, which may prove useful to record and playback full holographic images. The long silver tube will fit well into your trouser leg."

Or whatever. The less you take your reader out of the story, the more they will be glued into it.